TODARO’S MODEL OF MIGRATION

Rachna Mujoo

Professor

Applied Economics

University of Lucknow

Lucknow

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The model presented by Lewis has limitations for its applications to less developed

countries. The two sector model developed by Lewis cannot be applied in the case

of developing countries where the rate or urban unemployment is positive and

growing. Michael Todaro has presented a model of internal migration which can

explain the situation of migration in presence of urban unemployment. The model

given by Todaro seems to be more realistic for developing countries. It can explain

the paradox of rural-urban migration in the presence of rising unemployment. The

model is based on following assumptions:

1) There are mainly two sectors in an economy: rural and urban. Wages in the

urban sector are higher than wages in the rural sector.

2) Migration is positively related to higher urban wages and higher urban

employment opportunities.

3) Migration is primarily an economic phenomenon involving rational decision

on the part of the migrants.

4) The differential earnings that motivate migration is expected earnings in

urban areas rather than actual earnings – Migration takes place if expected

urban income is higher than prevailing rural income.

 5) Internal migrants maximise the expected gain from migration (expectation

plays an important role in the decision to migrate).

6) Migration acts as an equilibrating force, equalizing rural and urban expected

incomes.

7) Probability or obtaining urban jobs is inversely related to urban

unemployment rates.

On the basis of above assumptions Todaro has developed a model of internal

migration.

Explanation of Todaro’s Model

Starting from the assumption that migration is an economic phenomenon which for

the individual migrant can be quite a rational decision despite the existence of

urban unemployment, the Todaro model postulates that migration proceeds in

response to urban-rural differences in expected rather than actual earnings. The

fundamental premise is that migrants consider various labour market opportunities

available to them, as between rural and urban sectors, and choose the one that

maximizes “expected” gains from migration. Expected gains are measured by

i. Differences in the real incomes between rural and urban work,

ii. The probability of a new migrant obtaining an urban job.

In essence, Todaro’s theory assumes that members of the labour force, both actual

and potential compare their expected incomes for a given time horizon in the urban

sector (i.e. returns-costs) with prevailing average rural Ys, and migrate if the

former exceeds the latter. Taking an example of an average semi-skilled or

unskilled rural worker Todaro says that if he has choice between being a farm

labourer (or working on his own land) for an average annual Y of say, 50 units, or

migrate to the city where worker with his skill or education background can obtain

wage employment yielding annual real income of 100 units. The commonly used

economic models of migration which place exclusive emphasis on income

differential factor as a determinant of the decision to migrate, would indicate clear

choice in this situation. Worker should seek higher paid urban job. However, their

models of migration were developed in the context of advanced industrial

economies, and as such implicitly assumed the existence of fuill or near full

employment. In a near full employment environment the decision to migrate can be

predicated solely on securing the highest paid job wherever it becomes available.

Simple economic theory would then indicate that such migration should lead to a

reduction in wage differentials through the interaction of the forces of demand and

supply both in areas of emigration and in points of immigration.

Unfortunately this analysis not realistic in the context of institutional and

economic framework of the most third world countries. First of all, these countries
are beset by chronic and serious unemployment problem with the result that

typical migrant cannot expect to secure highly paid urban job immediately. It is

much more likely that upon entering the unban labour market the migrant will

either become totally unemployed or will seek casual and part time employment in

the urban traditional sector.In making his decision to migrate, the individual must

balance the probabilities and risks of being unemployed or underemployed for a

considerable period of time against the positive urban-rural real income

differential. The fact that a typical migrant can expect to earn twice the annual real

income in an urban area than in a rural environment may be of little consequence if

the actual likelihood of his securing the higher paying job within say, one-year

period is one chance in five (1/5=0.2). Thus, the probability of his being successful

in securing the higher paid urban job is 20% and his expected urban income for

one-year period is in fact 20 units (0.20 x 100 = 20) and not the 100 units that

urban worker in full employment environment would expect to secure. With one

period time horizon and probability of success of 20% it would be irrational for the

migrant to seek urban job even though the difference between his urban and rural

earning capacity is 100%. On the other hand, if probability of success were say

60% so that expected urban income is 60 units, it would be perfectly rational for

the migrant with a one period time horizon to try his luck in urban area even

though unemployment may be extremely high.

Rather than equalizing the urban-rural wage rate as in a perfectly competitive

labour market model, rural-urban migration is this model acts an at equilibrating

force which equates rural-urban expected incomes. For example, if average rural

income is 60 and urban income is 120, then a 50% unemployment would be

necessary before further migration is no longer profitable. To sum up, Todaro

migration model has four basic characteristics. -

a)Migration is stimulated primarily by rational economic consideration of

relative benefits and costs .

b)Decision to migrate depends on ‘expected’ rather than actual U-R real wage

differential.

c)The probability of obtaining an urban job is inversely related to urban

unemployment rate.

d)Migration rates in excess of urban job opportunity growth rate are not only

possible but also rational and even likely in face of wide urban-rural expected

income differentials.
Diagrammatic Explanation

Source: M.P. Todoro and Stephen, C. Smith (2004), “Economic

Development”, VIIIthedn., Pearson Education, p.341.

Assume two sectors, rural agriculture and urban manufacturing. The demand
for labour (MPL curve) in agriculture is given by negatively sloped line AA’.
Labour demand in manufacturing is given by MM’ (from right to left). The total
labour force is given by line OAOM. In a neoclassical flexible wage, full
 employment framework e.g. wage will be established at WA*= WM*; OALA*
in agriculture on OMLM* workers employed in manufacturing so that all
available workers are therefore employed.

But if the WM institutionally determined (inflexible downwards) as assumed

̅ M, which is at a considerable distance above WA*. If we
by Todaro at a level W
assume that there is no unemployment, OMLM workers would get urban jobs
and the rest OALM will have to settle for rural employment at OAWA **
wages(below the free market level of OAWA. So now we have an urban rural
̅ M – WA** with WM institutionally fixed). If rural workers
wage gap of W
were free to migrate then despite the availability of only OMLM jobs; they are
willing to take in urban job lottery. If their chance (probability) of securing one
of these favoured jobs is expressed by the ratio of employment in
manufacturing, LM, to the total urban labour pool, LUS, the expression –

𝐿𝑀
𝑊𝐴 = ̅ M)
(W
𝐿𝑈

Shows the probability of urban jobs success necessary to equate agricultural

̅ M ) thus causing a
income WA with urban expected income (LM/LUS) ( W
potential migrant to be indifferent between job locations. The locus of such
points of indifference is given by qq’ curve. The new unemployment equilibrium
̅ M – W’A; OALA
now occurs at point Z, where urban-rural actual wage gap is W
workers are still in agricultural sector and OMLM have modern sector jobs
̅ M wages. The rest, OMLA – OMLM, are either unemployed or
paying W
engaged in low income informal sector activities. This explains the existence of
urban unemployment and provides economic rationality of continued R to U
migration despite this high unemployment
 Criticism

However, Todaro model is not free from criticism. Firstly, the prospective migrant

does not precisely know the actual rate of unemployment in urban area for the type

of job he is seeking before migration. Secondly, several times a person migrates to

urban sector only after being appointed for jobs. In that case, Todaro’s model does

not seem very relevant. Thirdly, even if it is known that there is some

unemployment rate in the urban sector, the exact figure may not be known. Hence,

the calculation of the probability becomes a mere guess work and does not serve

any real purpose in the matter of decision making. Fourthly, an ordinary migrant

does not generally bother about the probability value for a making a decision

regarding migration or in most cases does not or cannot calculate the probability

value. Lastly, Todaro model shows that for every employment creation in the

urban sector there will the intensification of unemployment rate and the

possibility of slowing down agricultural output and employment. Todaro has not

suggested a fool-proof policy measure for this. In spite of these limitations

Todaro’s model has introduced a new insight into the study of rural-urban

migration behavior which can be made applicable to less developed countries

Notes and References

1. M.P. Todoro and Stephen, C. Smith (2004), “Economic Development”,

VIIIthedn., Pearson Education, pp.S.336-345.
2. M.L. Jhingan, The Economics of development and Planning, Vrinda
Publications, 2011.n

3. faculty.washington.edu/danby/todaro/Todaro.htm

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